The Collapse of Consensus: The contemporary confusion over macroeconomic policy

Consensus in macroeconomics helps policymakers formulate a coherent and logically consistent group of policies. At different times in the post-war era there has been consensus around first Keynesian and then monetarist ideas. Economic crises have frequently brought one type of consensus to an end, allowing another to be formed. For much of the 1990s and 2000s there seemed to be consensus built on compromise about the way in which fiscal and monetary policy should be used. However, this collapsed with the global financial and economic crisis. For a brief interlude, a Keynesian consensus re-emerged, but this did not last. At present, there are sharp divisions among economists concerning the effects of macroeconomic policy, and this means that life has become much more confusing for policymakers. This article explores what has been going on, and considers the implications for the future.